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Three essays in managerial cognition and strategic decision making

  • Autores: José Lejarraga Camino
  • Directores de la Tesis: Charlotte Gaston Breton (dir. tes.), Ester Martínez Ros (dir. tes.)
  • Lectura: En la Universidad Carlos III de Madrid ( España ) en 2010
  • Idioma: inglés
  • Materias:
  • Enlaces
  • Resumen
    • Little is known about how managers select risky strategic actions such as the introduction of innovations, engagement in alliances, mergers, or any other strategic choice (Simon and Houghton, 2003). While the importance of firm’s strategic processes has been acknowledged both theoretically and empirically, few efforts have been committed to understanding the decision paths through which managers select such risky actions and how they affect performance. Variables related to the decision-making process, such as the type of information utilized in decision-making, and the rules for processing information have been downplayed as determinants of organizational outcomes. Decision theory has analyzed these variables mainly through neoclassical theories emphasizing rationality of agents. In the last decades, descriptive behavioral theories assuming bounded rationality of agents have surged to tackle these variables in order to explain risky actions, though little of this research deals directly with strategic management issues. In the specific case of innovation, while most studies exploring the determinants of innovative performance have looked at organizational structures, resources and environmental characteristics, only a few studies have emphasized the influence decision making strategies on firm innovation (Simon and Houghton, 2003). Moreover, this kind of studies have focused on individual-level characteristics of key decision makers (e.g. upper echelons) as variables affecting innovation, such as age, educational background, and other socio-demographic characteristics. However, the effect of cognitive processes on firm innovation has been generally overlooked up to date. The general lack of attention to cognitive aspects is reflected in many studies which implicitly state that decision makers are homogeneous inputs and perfect substitutes for one another taking part in the organization process. However, this neoclassical view fails to explain why organizations with similar resources, and facing similar economic environments, make significantly different decisions. Managers not only depart from the principles of classical decision theory, but are also subject to different judgmental biases when making decisions under uncertainty (March and Shapira, 1987; Hogarth, 1987). During the strategic decision-making process, managers look upon organizational and environmental factors as a base for their decisions, and act as filtering mechanisms interpreting data through their particular cognitive mechanisms. Therefore, identifying the differences in cognitive processes of managers may help explain the differences in their decisions to innovate. In line with behavioral decision research (Hogarth, 1987; Kahneman, 2003) and other behavioral studies of organizational decision-making (Cyert and March, 1963; March and Shapira, 1987; Levinthal and March, 1993) I intend to examine the decision-making process followed by organizations by exploring the cognitive processes they follow when making strategic decisions in general. The present study will focus on the literature on heuristics and cognitive biases, and on decision making styles. Heuristics are habitual simplifying strategies, or “rules of thumb”, which people commonly use to reduce the amount of information they must consider in decision-making. Cognitive biases are systematic errors of judgment that lead to cognitive illusions which are not easily eliminated. The literature on behavioral decision-making has also recognized two fundamental styles of thinking and deciding: an analytical mode and a non-analytical mode (Kahneman, 2003). Decisions made with the analytical mode undergo computation, consultation, or evaluation of analytical data. Non-analytical decisions are intuitive, and do not make use of exhaustive data processing, and rely on heuristics, impressions, and associative or emotional tools (Kahneman, 2003). These different styles are suitable for particularly different decision environments, and exploring which one is more suitable for strategic decision processes regarding innovation is an open avenue for research. The central contention of this thesis is that it is essential to understand non-rational1 decision-making in order to understand why different cognitive processes may lead to different organizational decisions, behaviors and performances. I attempt to address this central theme through three essays, each one focusing on a different question and adopting a different methodology.

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